Most U.S. Taxpayers are aware of the forms they must file annually with the IRS. However, many American Indians or Expats are unaware of the compliance requirements of fbar and 8938 form filing. While, at first glance these two forms may seem similar, the differences are many, which this guide will outline.
Form 8938 is filed annually with your tax return to the IRS, which details the information of all your foreign financial assets and accounts. The purpose of this form is to ensure every U.S. taxpayer is compliant with tax laws and not evading taxes on income earned abroad, as per Foreign Account Tax Compliance Act (FATCA). Form 8938, also commonly referred to as the FATCA form, is filed to ensure compliance by every taxpayer subject to its laws.
Foreign Bank Account Reporting (FBAR) is a simple form filed with the treasury department outlining the details of Financial accounts held in foreign financial institutions. While, Form 8938 has tax implications, FBAR is only a report outlining the details of all foreign bank accounts held by the taxpayer, so that if a person is evading taxes by hiding his/her money offshore, the IRS can catch them.
[ Read: FBAR in Detail ]
Foreign Bank Account Reporting
Who Must File?
|U.S. Citizens and resident/ aliens (nonresident alien in special circumstances) holding financial assets which fall within the reporting thresholds.||Any U.S. citizen, resident aliens, trusts, domestic entities and estates must report their foreign financial accounts that meet the reporting threshold limit.|
Are U.S Territories Applicable?
When is it Due?
|It must be filed on the same date as your annual income tax return, which is filed with the IRS.||It must be filed by April 15th of every year (extension till October 15th available)|
Where is it Filed?
|To the IRS with your annual income tax return||Through BSA’s e-filing System.|
What Must be Reported?
|Maximum value of all foreign assets, including financial accounts and foreign investments||The details of all financial accounts held in the foreign country.|
What is the Reporting Threshold?
|The reporting threshold varies from $50,000 to $600,000 depending upon factors such as married, unmarried, joint account or single account. Click to see the details of form 8938 threshold||If the total of all foreign accounts held exceeds $10,000 at any time during the calendar year, even if is only by $1.|
How are account and asset values determined?
|The market value can be calculated using the currency rate at the end of the taxable year, as per form 8938 instruction.||The maximum value according to the bank account statements, converted into U.S dollar as per the exchange rate at the end of year.|
|The penalty for non-disclosure is $10,000 with an additional $10,000 for every thirty day cycle of non-filing post receiving a notice from the IRS. Criminal prosecution is also a possibility.||In non-willful cases, the fine can be up to $10,000 and if found that non-disclosure was intentional then penalties up to $100,000 or 50% of the account balances, whichever is greater. Criminal prosecution is also possible.|
Below is a list classified as assets, which are reportable under FBAR and Form 8938.
|Types of Asset||Form 8938||FBAR|
|Directly held foreign currency||No||No|
|Jewelry, Cars, Antiques, etc.||No||No|
|Social Security from Foreign Country||No||No|
|Mutual Funds From Foreign Country||Yes||Yes|
|Domestic Mutual Funds/Securities||No||No|
|Foreign life-insurance or annuity contract containing cash value||Yes||Yes|
|Foreign equity and hedge funds||Yes||No|
|Directly held foreign real estate||No||No|
|Foreign real estate held through foreign entity||No||No|
|U.S Bank account held in a branch in a foreign country||No||No|
|Foreign Account with Signatory Authority||No||Yes|
|Foreign Stocks and Securities from a foreign country in a foreign financial institution||Yes, but contents to be reported separately||Yes, but contents to be reported separately|
|Foreign stocks and securities not in a financial account||Yes||No|
|Partnership interest in foreign country||Yes||No|
|Interest in Foreign financial assets through an entity||No||Yes, if ownership or beneficial interest is sufficient|
|Financial accounts in foreign financial institution||Yes||Yes|
You have financial interest if you have signatory authorities or if you have authority over more than one foreign account. You are required to report the foreign financial account information of accounts which have exceeded $10,000 at any time in the calendar year, even if it is for a single day.
Persons working for federally regulated banks or federally regulated publicly traded corporations, having signatory authority, but no financial interest may be not be required to file Foreign Bank Account Reporting, For detailed information about guidelines in reporting FBAR, read the exceptions of Foreign Bank Account Reporting.
The filing of FBAR and Form 8938 is mandatory for American Indians and expats, failure to which is punishable by jail time, in certain scenarios. To ensure you report all your financial details to prevent complications in the future, enlist the aid of U.S tax experts at H&R Block India.